The Zip Co Ltd (ASX: ZIP) share price has taken a beating in 2022 so far, shedding 85%. And after posting a $1 billion loss to the market in August, the buy now, pay later (BNPL) share attracted the interest of motivated short sellers. Indeed, it made the list of the top ten most shorted ASX stocks on Monday.
Zip suffers from two key problems in a bear market. One is, it's hemorrhaging money and, two, it seems increasingly likely we're heading towards, or are already in, a recession.
Both factors put pressure on Zip's fundamentals going forward. And now the company may be facing further headwinds with Australians seemingly moving away from BNPL payment schemes and back to traditional forms of credit in record numbers.
That's the claim from MWE Consulting's monthly Australian Payment Cards Report, published by Banking Day. Let's have a look at the details.
What did the report say?
The report said Australian credit card and charge card spending increased by $4 billion in the month of August, making it the highest monthly card spend on record.
MWE Consulting industry analyst Mike Ebstein said:
The migration of card spend from credit and charge to debit has ceased. Balances increased by $277 million from July to $38.3 billion but balances accruing interest dipped by $16 million to $17.8 billion.
As a direct dig at BNPL shares like Zip, Ebstein believes that account numbers could have only just reached the bottom across the industry.
Ebstein said:
The long slide in account numbers may well have reached its nadir with a further small increase from July to August.
Internet traffic confirms the swing to credit cards
To make matters worse, a traffic analysis by web analytics company Similarweb shows that increasing numbers of Australians are visiting credit card pages on the websites of the big four banks. This also correlates with the rise in Australian credit card spending.
Similarweb's enterprise sales manager Scott Rogers-Jones stated that visits to the credit card pages of the major banks are up 22% year over year (yoy) and that for every month, bar January, the pages have received at least a double-digit growth in visitors.
He speculated the return of international travel could be playing a part in the renewed interest in credit cards. Frequent flyer perks could be what's pushing the needle back towards credit, with some of Australia's top search queries coming up as 'Qantas credit card' and 'frequent flyer credit cards'.
Rogers-Jones concluded his analysis with the following, which helps to illustrate why BNPL shares like Zip could be facing a new competitive threat in the marketplace in the form of travel reward points:
Overall, the RBA [Reserve Bank of Australian] data paired with Similarweb data shows a real increase in interest and activity when it comes to credit cards. In addition, credit cards have a competitive advantage over other lines of credit as there is the opportunity to earn frequent flyer points for every $ you spend.
Zip share price snapshot
Zip shares currently trade for 63.2 cents each. It's a long drop from their all-time high of more than $12 a share in February last year.
The Zip share price is down more than 90% over the past 12 months. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is down around 8.5% over the same period.
The company's market capitalisation is around $451 million.
